Fate of federal terrorism program may hinge on Treasury report due June 30
Property-casualty insurers and commercial insurance buyers are finalizing battle plans to push for extension of the Terrorism Risk Insurance Act as the Bush administration prepares to release a report that will play a key role in determining the fate of TRIA, due to expire on Dec. 31.
The Treasury Department report by law must be in the hands of Congress by June 30. The White House and Treasury gave no hint as to what the report will say and when it will be released, although there is strong speculation it will be presented this week.
Rep. Paul Kanjorski, D-Pa., a ranking member of the House Financial Services Committee, last week castigated the White House for lack of attention to the bill and the House Republican leadership for inaction. He warned that the industry might have to accept a series of six-month extensions to win the two-year transition seen as the time period needed to develop a private market for terrorism coverage. He said leadership for extension from the administration has been “totally absent.”
Among the administration’s deficiencies, he said, is the fact there is nobody at the appointed level at Treasury to marshal the bill through Congress. He said he hasn’t heard from President Bush on TRIA.
He said TRIA extension is not a pressing issue with the administration. “We are not going to get a TRIA extension by public demand–we’re going to get it by forceful advocacy,” Rep. Kanjorski said “That’s because of the ‘delay of DeLay,’” he added, referring to House Majority Leader Rep. Tom DeLay, R-Texas, who has strongly questioned the need for the government to insure private property.
Insurance industry officials have been battling for a year to have the current terrorism reinsurance backstop extended for two years while a more permanent solution with lesser federal involvement is crafted.
These people say that if the report recommends a straightforward two-year extension as represented by the legislation introduced several months ago by Sens. Robert Bennett, R-Utah, and Chris Dodd, D-Conn., it will set off immediate action in the House, probably leading to hearings by mid-July in the House Financial Services Committee, as well as the introduction of legislation there by the time Congress leaves for its August recess.
An equally positive result will occur if the report recommends a one-year extension while providing “contours” as to what the administration will accept as a long-term solution. “Anything that is nebulous is beneficial, setting off immediate action–at least in the House,” one lobbyist said. “Any combination of the above options is acceptable.”
However, there is trepidation that the report will make no recommendations as to what is acceptable to the administration, “which means there will be no extension,” the lobbyist predicted.
The silence has created deep anxiety in the property-casualty industry. Buyers of terrorism coverage also voiced their concern in a June 8 letter to President Bush from a group called the Coalition To Insure Against Terrorism, representing all types of commercial insureds but run by groups that represent real estate interests.
“Notwithstanding the encouraging signs that TRIA is working as intended, the members of CIAT are increasingly anxious about the prospect that TRIA will not be extended beyond the Dec. 31, 2005 expiration date,” the letter said. “With TRIA set to expire at year-end, there is no evidence to suggest that insurance markets will be able to provide adequate insurance against catastrophic acts of terrorism without a federal insurance backstop.”
Both the Property Casualty Insurers Association of America and the American Insurance Association have drafted contingency plans as to what they will ask Congress to do if the administration says that TRIA has worked in reducing the cost and improving the availability of terrorism risk coverage, but that the program should be “pared back” going forward to create a greater incentive for development of a private market.
If this is what the Treasury report suggests, PCI says that Congress should act to “enable or establish a facility that would allow insurers to share and/or ‘buy-down’ some of the increased risk they may bear and to better manage their individual company exposure to terrorism risk.”
PCI also suggests that the government could encourage the development of a viable private market for terrorism-related catastrophe bonds by providing tax incentives, such as those that would facilitate issuance of pre-event catastrophe bonds “intended to permit companies to better manage the retained exposure at acceptable levels.”
The AIA has proposed that as a long-term option the government examine accepting all responsibility for chemical, biological, nuclear and radiation risks, while the private market deal with the liability associated with lesser risks.
Head: What Are The Alternatives?
In its upcoming report on the need for TRIA extension, the Treasury Department could offer a number of recommendations, including:
o Extend the program, as is, for another two years while a private market continues to develop.
o Extend TRIA one year while providing “contours” as to what the White House will accept as a long-term solution.
o A statement that while TRIA has cut the cost and improved the availability of terrorism insurance, the program should be “pared back” to create a greater incentive to develop a private market.
o Worst-case scenario: TRIA should not be renewed–seen as a long shot.